Concord Coalition Gives Mixed Reviews to President's Budget

The Concord Coalition today gave mixed reviews to President Obama’s proposed budget for the 2013 Fiscal Year, praising its recommendations to broaden the tax base and achieve incremental Medicare savings but lamenting the lack of a greater commitment to broader structural reforms that his bipartisan fiscal commission recommended. Overall, the bottom-line numbers indicate that much additional work needs to be done.

“Some describe the President’s budget as trying to tame the federal debt while others say it shifts the focus away from deficit reduction,” said Robert L. Bixby, executive director of The Concord Coalition. “This plan appears to be something of a Rorschach test, with even non-partisan analysts emphasizing different elements and drawing different conclusions. Interpreting Obama’s budget depends a lot on which proposals and projections you emphasize.”

It would be very difficult to pursue some of the administration’s policy initiatives while complying with recently enacted budget restraints. For example, the budget calls for major new domestic investments while at the same time promising to stick with caps that are projected to cut discretionary spending to its lowest level in the past 50 years. And in Medicare, the budget claims $267 billion in new savings from provider payments, although such policy changes may be needed simply to achieve assumed caps that were enacted in the 2010 health care reform bill.

The White House now projects that the deficit for the current fiscal year will be slightly higher than last year’s $1.3 trillion, which seems at odds with all of the talk in Washington last year about spending cuts and deficit reduction. But many of the cuts approved last year will be phased in, and the “automatic” cuts triggered by the super committee’s failure do not even start until next year. In addition, continuing concerns about unemployment and the slow economic recovery argue for some further short-term support for the economy.

Concord -- along with Federal Reserve Chairman Ben Bernanke and many others -- has long argued that short-term economic support should not preclude the development of credible plans to rein in the large deficits that are projected over the next decade and beyond. Such longer-term plans, in fact, can also help in the short run by boosting public confidence and addressing concerns in the financial markets over the rapidly rising federal debt.

Last year’s Budget Control Act (BCA) called for $2.1 trillion in deficit reduction over the next decade, far short of what had been recommended by the President’s National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center’s Debt Reduction Task Force and other bipartisan groups.

The President’s 2013 budget calls for another $2 trillion in deficit reduction over 10 years. In addition, the administration is proposing deficit-reduction alternatives for the $1.2 trillion in “automatic cuts” that are scheduled under the provisions of last year’s legislation -- cuts that many lawmakers in both parties say they would like to avoid. Opening up the process to a broader range of options in this way would be a positive step away from the BCA’s overly narrow focus on discretionary cuts, so long as it results in the same amount of deficit reduction.

“The deficit-reduction figures now being debated can get confusing because they depend so much on which starting point is used and what assumptions are made,” Bixby said. “The administration, for example, is assuming nearly $850 billion in ‘war savings’ that were never going to be spent anyway. Worse yet, a portion of this phantom savings is designated for new spending. And while the President plans to save some money by letting certain tax cuts expire for the wealthy this December, those ‘savings’ would be more than wiped out by his proposal to extend the tax cuts for everyone else.

“What’s important is not how much deficit reduction is claimed but where spending, revenues, deficits and debt end up as a percentage of the overall economy, and whether the policy assumptions for getting there are credible.”

On the positive side, Obama’s budget recognizes that Washington cannot address the country’s enormous fiscal challenges by simply focusing on further restraint in the “discretionary” spending that Congress approves each year for domestic programs and defense. Elected officials must also focus on entitlement spending, health care costs and the tax system, as Obama seems willing to do.

The President continues to call for substantial changes in the tax code, doing away with many special provisions that favor some taxpayers over others while depriving the Treasury of hundreds of billions of dollars in revenue every year. These “tax expenditures” function much like spending programs and require additional government borrowing. And there is a bonus to doing away with many of them: This would simplify the tax code and reduce the frustration and costs of preparing tax returns.

Diane Lim Rogers, chief economist for The Concord Coalition, says one of Obama’s tax proposals is particularly noteworthy: limiting the tax benefit of itemized deductions and other tax expenditures to 28 percent. “It’s a great idea,” she says, “because it would reduce a large tax subsidy for those who need it least, improve the economic efficiency of the tax code, and raise revenue that could be used to reduce deficits.”

Obama’s budget calls for some positive changes in entitlement spending but they fall short of the sweeping reforms that will be needed to deal with the growing pressures on the federal government as the population ages and health costs continue to rise. His fiscal commission’s long list of thoughtful proposals in this area deserves another look in the White House and on Capitol Hill.

“Conventional wisdom suggests that we’re not really going to make much progress on fiscal reform in an election year,” Bixby says. “But given Washington’s disappointing performance on the budget last year, we really can’t afford to put everything on hold for another year. Progress will require bipartisan cooperation and compromise, and we urge elected officials in both parties to keep that in mind even as the campaign rhetoric heats up.”